National Association of Purchasing Managers (NAPM)/ Institute for Supply Management

The National Association of Purchasing Managers, now called the Institute for Supply Management (ISM), releases a monthly composite index of national manufacturing conditions, constructed from data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export orders, and import orders. It is divided into manufacturing and non-manufacturing sub-indices. Survey responses reflect change, if any, from the current month to the previous month, the percentage reporting each response, the net difference between the number of responses in positive/ negative economic direction, and the diffusion index. The Manufacturing ISM is based on data compiled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies, weighted by each industry's contribution to GDP. Twenty industries from various U.S. geographical areas are represented. The Non-Manufacturing ISM is based on data from more than 370 purchasing and supply executives in over 62 different industries. Financial markets are extremely sensitive to unexpected changes in this index. ISM is perceived as a good indicator of inflationary pressures. Since the manufacturing sector is a major source of cyclical variability in the economy, this report has a big influence on the markets. More than one of the ISM sub-indexes provides insight into commodity prices and clues regarding the potential for developing inflation. The Federal Reserve keeps a close watch on this report in determining the direction of interest rates when inflation signals appear. As a result, the bond market is highly sensitive to this report. Turning points in the composite index suggest either a slowing or acceleration in the nation's economic activity. Change in prices paid by manufacturers is indicative of accelerating or decelerating inflation. Growth in new orders will predict manufacturing activity in future months. Readings above 50% indicate an expanding factory sector. An index value above 43.9 over a period of time generally indicates an expansion of the overall economy. Note: The index does not capture technological change and production efficiencies, which make it possible for production to expand, while employment contracts. The National Association of Purchasing Managers, now called the Institute for Supply Management (ISM) is scheduled for release at 9:00 (CST) at the beginning of the month by the National Association of Purchasing Managers (Institute for Supply Management).

POTENTIAL IMPACT ON INTEREST RATES: HIGH